Security Packages and Guarantees in European Mid-Market Deals: Structures and Limits

European Security Packages and Guarantees Guide

A security package is the bundle of liens and pledges over shares, assets, receivables, bank accounts, and intellectual property that a borrower grants to a security agent for the benefit of lenders. A guarantee is a promise by group companies to pay the secured debt if the borrower does not, subject to local rules on corporate benefit, capital maintenance, and financial assistance. In European mid-market deals, these two tools decide real recoveries and how much leverage the structure can carry.

This guide explains how to assemble a practical, enforceable package that closes fast, respects local constraints, and maximizes bargaining power in a workout. You will learn the moving parts, where timing slips, and how to calibrate cost against recovery value.

What each party optimizes

Lenders prioritize first-ranking claims on cash, receivables, and shares, plus full-group guarantees. That positioning improves recoveries and gives leverage in a restructuring, which raises closing certainty and typically tightens pricing. To achieve it, lenders push for broad coverage and robust enforcement tools baked into the documentation.

Sponsors seek speed and certainty with measured cost. They avoid asset classes that trigger high taxes or notarial friction, and they negotiate sensible limits on upstream and cross-stream guarantees. Their goal is a package that closes on time with clean mechanics and tolerable leakage.

Borrowers want flexibility and unobtrusive administration. They avoid mechanics that disrupt customers or vendors, especially where receivables are core to the business. For them, a clean operations footprint and clear optics matter as much as strict legal coverage.

Building the package: core steps that actually work

Share security across the group

Start with share security over the borrower and each material subsidiary up the acquisition chain, while skipping the sponsor HoldCo. Because formalities are country-specific, plan steps early and book notaries where needed.

United Kingdom: Take an English-law share charge. Where fit, legal title transfer mechanics can be pre-agreed on a case-by-case basis.
Germany: GmbH share pledges require notarization and an updated shareholder list filed with the commercial register. Book the notary early.
Netherlands: BV shares require a notarial deed. Notarial involvement is mandatory if the deed is provided at completion.
France: Pledges over actions or parts sociales follow registration steps and often benefit from pre-agreed appropriation clauses.
Spain: SL quotas need a notarial deed and Companies Register entry.
Italy: Pledge rules vary by company type, with notarial deeds required in many cases.

Asset security that captures cash

Asset security adds accounts, receivables, inventory, intellectual property, and real estate where justified. The focus is on control of collections and visibility on cash.

Receivables: Use English fixed charges or assignments, French ordinary or Dailly assignment (Dailly via credit institutions), German security assignment, Dutch non-possessory pledges (disclosed or undisclosed), Spanish non-possessory pledges via the Movables Registry, and Italian assignment by way of security.
Bank accounts: Local account pledges with bank acknowledgments are the core control tool. Expect cash dominion upon default.
Inventory and equipment: Use English fixed or floating security, German security transfers of title and pledges, Dutch non-possessory pledges, the French non-possessory gage, and Spanish and Italian non-possessory pledges where available.
Intellectual property: Record charges with national registries, such as the UK IPO, INPI, DPMA, BOIP, OEPM, or UIBM, to perfect and publicize priority.
Real estate: Mortgages and land charges are available but expensive due to taxes, notarization, and registration. Use them when property is core to value or for asset-based lending blocks. The timing and taxes can be material.

Floating and enterprise charges by regime

The UK floating charge is a workhorse that covers fluctuating assets and supports out-of-court enforcement rights. Many civil law systems replace it with combinations of security assignments, non-possessory pledges, and universal pledges, because there is no true German floating charge. Plan equivalents at term sheet to avoid last-minute redesigns.

Guarantees and their limits: what boards must record

Upstream and cross-stream guarantees are standard but must respect each jurisdiction’s corporate benefit and capital maintenance rules. Boards should minute concrete benefits, proportionality, and solvency analysis. Guarantee language should limit recourse when net assets would be impaired, avoiding unlawful returns of capital.

United Kingdom: Private companies can give financial assistance. Charges must be filed at Companies House within 21 days or the security risks being set aside against an administrator or liquidator. File immediately because failure is fatal against an officeholder.
France: Financial assistance restrictions apply to certain entities around acquisitions of their own shares. Upstream guarantees are commonly capped by net assets or a negotiated maximum amount, so cap design decides future headroom.
Germany: There is no standalone financial assistance ban, but GmbHG sections 30 and 31 require net assets to remain intact. Expect limitation language that caps at net assets, suspends enforcement that would breach section 30, and subordinates recourse claims to other creditors.
Netherlands: There is no financial assistance prohibition for BVs or NVs. Corporate benefit and creditor-interest tests apply. A parallel debt remains the clean way to anchor accessory security to the agent.
Spain: Financial assistance restrictions exist for S.A. and S.L. companies with limited exceptions and no broad whitewash. Mortgages attract regional AJD stamp duty paid by the lender, which can create tax leakage if real estate is included.
Italy: S.p.A. support may be permitted if strict procedures and reserve coverage are met. S.r.l. support is often possible with caution. Mortgages are cost-heavy, so pledges and assignments are often better value.

Control and enforcement: intercreditor, agent, and parallel debt

Mid-market structures often pair a unitranche with a super senior revolving credit facility. The super senior typically controls acceleration after a standstill, while all senior creditors share a single security package and waterfall. Hedging often shares security and ranks with or just below the super senior per the intercreditor.

A security agent holds the collateral. In civil law systems where security is accessory to the claim, a parallel debt to the agent in an amount equal to the secured liabilities lets the agent be creditor of record. That structure stabilizes the security as lender rosters change and supports clean enforcement and releases. For the control architecture and voting mechanics, see practical guidance on intercreditor agreements.

Financial collateral coverage for share pledges and cash is worth the effort. Where collateral falls within the EU Financial Collateral Arrangements framework, parties can rely on out-of-court appropriation and certain insolvency protections. Appoint a qualifying financial institution as security agent if that widens coverage and speeds appropriations.

For context on pricing and adoption dynamics in current private credit markets, see a broader overview of unitranche loans.

Perfection, filings, and timing

Perfection drives closing risk and price. The right sequence cuts weeks, not days, from time to cash, so map filings at term sheet.

United Kingdom: Execute a debenture over all assets and register charges within 21 days at Companies House. Local filings for real estate and registrable IP follow. Timing is fast with low hard costs.
France: Register share pledges and certain movable pledges. Dailly assignment is available only via credit institutions. Agree appropriation mechanics up front where possible.
Germany: Notarize GmbH share pledges and file land charges with the land registry. Maintain schedules for assigned receivables. Book notaries early and plan for registry cycles.
Netherlands: Use notarial deeds for BV shares and register private-deed pledges with the tax authority. Parallel debt is standard and predictable.
Spain: Expect notarial deeds and registrations for SL quotas and receivables pledges. Real estate brings AJD stamp duty of roughly 0.5 percent to 1.5 percent by region.
Italy: Notarial deeds are common for mortgages and many pledges. The non-possessory pledge regime is available for certain movables but remains slower and costlier than the UK approach.

Documentation map

A coherent suite avoids gaps at enforcement. Align agency powers, intercreditor rights, and security releases at the start, not at closing.

Facilities: LMA-based agreements for the term loans and the super senior RCF, usually under English law with local security documents per asset location.
Guarantees: Upstream and cross-stream guarantees by material obligors with negotiated limitation language aligned to corporate benefit and capital tests.
Security: Share pledges or charges, an English debenture or local equivalents, receivables and account security, IP charges, and real estate security where justified. Include assignments of intra-group loans and insurance.
Intercreditor: Ranking, security sharing, standstills of 90 to 180 days, voting thresholds, and release mechanics.
Agency and parallel debt: The agent’s mandate, enforcement powers, and the parallel debt claim where needed.
Hedging: ISDA schedules and security accessions aligned to the intercreditor waterfall and voting.
Side letters and CPs: Information rights, valuation procedures under financial collateral rules, focused covenant adjustments, corporate approvals, solvency certificates, legal opinions, and filing evidence.

Money flows, triggers, and waterfalls

Loan proceeds hit a controlled account, then pay sellers, fees, taxes, and refinancings. Closing requires executed guarantees and critical perfection steps, with only agreed post-closing actions left open. Enforcement proceeds follow the intercreditor waterfall: costs first, then super senior and hedging, and then unitranche or other senior tranches. Default triggers such as missed payments, covenant breaches, or material adverse change clauses activate cash dominion and enforcement rights after standstills. For a refresher on how sponsors size and run maintenance tests, revisit common financial covenants.

Costs that move the needle

Agency and perfection costs vary by jurisdiction and asset class. Use these ranges to frame the budget and avoid late-stage surprises.

Agents: About €25,000 to €75,000 combined at close and €20,000 to €75,000 per year, scaled by complexity and jurisdictions.
Account banks: Roughly €5,000 to €20,000 per year for control and cash management.
Local perfection: UK filing fees are nominal; Germany relies on tariff-based notary and registry fees; France has modest registration costs but real estate taxes can approach 0.6 percent; Spain applies AJD of 0.5 percent to 1.5 percent on mortgages; Italy’s mortgage taxes and notaries can reach low single-digit percentages; the Netherlands leans on notarial fees and low-cost tax authority registrations for private-deed pledges.

As a yardstick, a €250 million unitranche with a €30 million super senior RCF across the UK, Germany, and the Netherlands often runs €150,000 to €400,000 of non-legal perfection and agency costs at closing and €100,000 to €200,000 per year ongoing. Add Spanish or Italian real estate and the bill can rise by €0.5 to €2.0 million, which is why sponsors often skip property security unless it is core to value. For a comparison with an availability-driven structure, consider how asset-based lending prices control and monitoring.

Accounting, tax, and compliance

IFRS recognizes financial guarantees at initial fair value and then at the higher of expected credit loss and the amortized amount. Upstream guarantees to third-party creditors sit off-balance sheet for the parent but require disclosure. Auditors focus on limitation language and corporate approvals, so align templates globally.

Intercompany guarantee fees should be arm’s length. Cross-border interest and fees may face withholding, often reduced by treaty or domestic exemptions. ATAD’s 30 percent of tax-EBITDA rule caps net interest deductions, so place leverage with those caps in mind. Anti-hybrid and principal-purpose tests still govern common holding routes. KYC and AML checks apply at each obligor, beneficial ownership registries must be updated, and sanctions screening should cover counterparties and potential enforcement outcomes.

Enforcement reality: how value comes back

Speed matters at default. In the UK, a qualifying floating charge can lead to the appointment of an administrator within days once standstills lapse. Financial-collateral-backed share appropriations can also move quickly. Civil law jurisdictions tend to be slower with more court or notarial involvement unless the financial collateral rules apply.

The equity route usually preserves licenses and contracts and keeps the business intact, but it brings all liabilities. The asset route ring-fences exposures at the cost of consents and taxes. Expect insolvency clawback scrutiny of upstream guarantees and late security. Hardening periods vary, so align signing, funding, and condition precedent delivery to reduce exposure.

Comparisons and alternatives sponsors use

Cash-flow vs ABL: Asset-based lending gives availability off receivables and inventory with strong reporting and cash dominion. Pricing is lower, monitoring is higher. Cash-flow loans rely on broad security and covenants, close faster, and pair well with unitranche structures.
HoldCo PIK: A non-guarantor holdco pay-in-kind note sidesteps operating-company assistance limits but sits structurally subordinated. It fits when operating company guarantees are constrained and the sponsor wants incremental leverage. Learn how sponsors structure these instruments in Europe with HoldCo PIK notes.

Implementation cadence that meets closing dates

A disciplined timeline keeps notaries, filings, and approvals on track. In week 0 to 1, agree term sheets and collateral scope, start KYC, and circulate a condition precedent checklist with jurisdictional maps. In weeks 1 to 3, diligence in-bounds assets, confirm anti-assignment and change-of-control issues, design account control, and draft the LMA facilities, intercreditor, guarantees, and core security. In weeks 3 to 5, finalize board minutes and benefit analyses, negotiate limitation language, and book notaries for Germany, the Netherlands, Spain, and any real estate. In weeks 5 to 7, sign and close, execute guarantees and security, make UK filings within 21 days, complete local registrations, deliver opinions, and track post-closing actions with firm long-stop dates. Assign clear owners across sponsor counsel, lender counsel, the security agent, local counsel, auditors, and tax.

Pitfalls and quick kill tests

Assistance blocks: If target-level support is blocked with no workaround, model leverage without upstream guarantees until a post-close reorg fits the group.
Thin net assets: If a guarantor’s net assets are thin, cap it and revisit guarantor coverage tests.
Real estate drag: If Spanish or Italian property is central to value, price AJD and mortgage taxes early. If uneconomic, rely on share pledges and negative pledges and lower recovery assumptions.
GmbH share issues: If a German GmbH has transfer restrictions or consent rights, fix them early and secure notary slots.
UK filings: If UK filings are not made within 21 days, the security fails against an officeholder. Build immediate filings into CPs and add remedies in the documentation.
Non-assignable receivables: If receivables cannot be assigned, use trusts, control over collection accounts, or a consent process, and model dilution and commingling in credit work.

Design principles that hold up in stress

Focus on cash: Share pledges over cash-generative entities, tight account control, receivables security that captures collections, and financial-collateral-eligible assets do most of the work.
Add property selectively: Add real estate only when value and ABL coverage justify the taxes and time.
Coverage targets: Aim for 80 to 90 percent guarantor and asset coverage on EBITDA and assets, with carve-outs where unlawful or disproportionately costly.
Limitations that work: Draft robust limitation language referencing net assets and distributable reserves with dynamic tests that avoid capital maintenance breaches.
Parallel debt and FCAD: Use parallel debt in the Netherlands and Luxembourg, and consider it in other civil law jurisdictions to stabilize accessory security. Hardwire appropriation, valuation methods, and notices.
Practical control: Anchor cash control where revenue is generated. Start with springing control and flip to dominion on default. Calibrate standstills so the super senior can act on liquidity stress while unitranche lenders retain restructuring leverage.

Enforcement playbooks you can run

Equity route: Pre-wire a business plan, management continuity letters, and a short-form vendor due diligence pack to run a quick sale or credit bid on share enforcement. Agree valuation mechanics up front to withstand challenge under financial collateral rules.
Asset route: If licenses or regulated assets require asset sales, build a consent matrix and cut-over plan for each asset class. Expect longer runs and some value leakage to taxes and fees.
Cross-border recognition: Post-Brexit, do not assume EU recognition of UK insolvency tools. Local-law share pledges and security reduce recognition risk.

A simple cost-to-recovery filter

As an extra lens, apply a quick filter before adding any asset to the package. If you cannot check all three boxes, rethink the asset.

Speed to control: Can you perfect in under 30 days and enforce without court where default probability is non-trivial in the hold period?
Cash adjacency: Does the asset either generate cash or gatekeep collections, such as accounts, receivables, or operating-company shares?
Tax friction: Are taxes and duties under 0.5 percent of the secured amount in the relevant jurisdiction, or is the asset strategically essential?

This rule of thumb increases close certainty and avoids spending heavily on collateral that is slow or weak at enforcement.

Closing Thoughts

Build the net where the cash is. A targeted security package and guarantees stack gives lenders leverage in distress while keeping closing friction manageable. Upstream guarantees help, but only if boards paper corporate benefit and caps with care. Price the legal architecture at term sheet and align filings early, and you will avoid surprises later.